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CHAPTER 10. HUD-HELD SERVICING
SECTION 1. INTRODUCTION
10-1. GENERAL. This chapter sets forth policies and
procedures applicable to the servicing of multifamily
housing projects with HUD-Held mortgages under all
sections of the National Housing Act. Consistent with
these procedures is HUD's policy of assuring the
restoration and maintenance of decent, safe, and
sanitary housing as well as limiting losses to the
insurance fund. The objectives of servicing HUD-Held
projects are:
A. Curing financial defaults and physical
deficiencies after assignment by working with the
mortgagor to maximize monthly remittance of
payments, and if necessary, by providing mortgage
relief, consistent with the long-term viability of
the project and the financial interests of the
government.
B. Encouraging the mortgagor to infuse funds, when
necessary.
C. Ensuring that the mortgagor provides adequate
management.
D. Preventing foreclosure where possible, thus,
reducing the potential for further operating
outlays from the insurance fund and the need for
additional rent subsidies.
10-2. DEFINITION OF A HUD-HELD MORTGAGE. For the purposes of
this Chapter, a HUD-held mortgage is described as
follows:
A. A mortgage originated and insured under any
multifamily section of the National Housing Act,
or formerly coinsured loans, endorsed for full
insurance, which has defaulted and been assigned
to HUD.
B. Section 221(d)(3) and Section 221(d)(4) projects
(including 221(d)(5), also known as BMIR) assigned
pursuant to the provisions of Section 221(g)(4).
C. Any mortgage originated through a direct loan to a
non-profit mortgagor/sponsor pursuant to Section
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202 or a capital advance mortgage pursuant to
Section 811 of the National Affordable Housing Act
or Section 202. The capital advance note and
mortgage bear no interest and repayment is not
required so long as the housing remains available
for very low-income elderly persons or very
low-income persons with disabilities (whichever is
applicable).
D. A Purchase Money Mortgage (PMM), created when HUD
sells an acquired property and takes back a
mortgage from the purchaser to refinance the sale.
10-3. TYPES OF DEFAULTS. The mortgagee assigns a mortgage to
HUD and receives mortgage insurance benefits as a
result of the following defaults:
A. Monetary Default - Failure of the mortgagor to pay
any installment payment due, including payments
due under any operating loss loan on any mortgage
insured by HUD. The delinquency must have
continued for 30 days.
B. Mortgage Covenant Default - Failure by the
mortgagor to perform any covenant due under the
provisions of the mortgage.
C. Technical Default - Failure by the mortgagor to
perform any covenant due under the provisions of
the Regulatory Agreement. Assignment based on
technical defaults must be approved by HUD.
10-4. HUD'S RIGHT TO REQUIRE ACCELERATION OF THE DEBT. Upon
receipt of notice of violation of any mortgage or
Regulatory Agreement provision, HUD may require, in
some cases, the mortgagee to accelerate the mortgage
and elect to assign.
SECTION 2. ASSIGNMENT OF MORTGAGE
10-5. GENERAL. One of the goals of HUD is the prevention of
mortgage assignments and protection of the insurance
funds. Cooperation among HUD, mortgagees and
mortgagors is of paramount importance in accomplishing
this goal. However, should the assignment take place,
there are four courses of action available to HUD as
assignee of a defaulted mortgage: 1) to hold the
mortgage in default, 2) require the mortgagor to bring
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the mortgage current, 3) place mortgage under a workout
agreement, or 4) place the mortgage in foreclosure. If
a mortgage is assigned and it is determined that the
mortgagor is unacceptable i.e., has failed to comply
with regulations, the Regulatory Agreement and/or any
subsidy contract terms, and/or has improperly used
project income, the mortgage should be considered for
foreclosure. In addition, HUD will impose the
appropriate administrative sanctions.
10-6. ELECTION TO ASSIGN. The mortgagee may work with the
owner to reinstate the mortgage consistent with
instructions in Chapter 11 of this Handbook, or elect
to foreclose and take ownership of the property. If a
mortgagee submits an election to assign, the owner must
be notified of HUD requirements as mortgagee. The
Field Office is encouraged to give the mortgagor an
opportunity to reinstate the mortgage. Conversely, the
Field Office should begin foreclosure proceedings of
the property if the full cooperation of the mortgagor
cannot be anticipated, or the prospect for ultimate
reinstatement is remote.
A. PROJECT OWNER'S ROLE. Upon assignment, HUD
becomes the mortgagee. Mortgage installments must
be made on time (the first day of the month) in
accordance with the monthly billings issued by
HUD. Failure of the mortgagor to submit timely
monthly installments could result in the immediate
commencement of foreclosure proceedings.
B. HUD'S ROLE. HUD, as the mortgagee for all
HUD-Held mortgages, has a responsibility to collect
the debt. HUD intends to collect that debt in its
entirety through monthly installments, workout
arrangements, restructuring the debt, selling the
mortgage, or foreclosure. If the loan is formerly
coinsured, the Housing Management Director may
utilize the services of Headquarter's management
contractor by requesting the Headquarter's
Government Technical Representative (GTR) to
place the loan in the contractors' work order.
Refer to Chapter 18 in this Handbook for role and
services provided by contractor.
1. Notification to Owner. A letter must be sent
to the owner within 10 working days from the
date the Field Office receives:
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a. the mortgagee's election to assign the
mortgage. See Appendix 1 for a sample
letter, or
b. notice that the mortgage has been
assigned. See Appendix 2a and 2b for
sample letters.
2. The Loan Management Branch Chief must be sure
the following actions are taken:
a. If the assigned mortgage cannot be
brought current immediately, the owner
must submit a written reinstatement plan
in accordance with guidelines in Chapter
11 of this Handbook. A reinstatement
plan is a list of all actions that will
be necessary to bring the mortgage
current and stabilize project
operations.
b. All reinstatement plans must address any
physical or regulatory deficiencies
present at the project and should be
covered in a Management Improvement and
Operating Plan (MIO Plan).
c. If the mortgagor does not develop an
acceptable plan or bring the mortgage
current, the Director, Housing
Management Division must immediately
forward a foreclosure recommendation to
the Regional Housing Director.
3. Complete Financial Analysis must be performed
in accordance with HUD Handbook 4370.1.
Additionally, the Loan Management Branch
Chief shall have a complete financial
analysis made to:
a. Determine what, if any, diversions or
misuse of funds have taken place in
violation of provisions of the Section 8
HAP contract, Regulatory Agreement, or
other HUD guidelines.
b. If a mortgage is assigned during the
first three years after endorsement,
determine whether liabilities existed at
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the time the mortgage was endorsed for
insurance; or if claims were
subsequently made by contractors,
sponsors, or others, in conflict with
the mortgagor's certification that the
project was absent of outstanding
obligations.
c. Determine what, if any, miscellaneous
assets may be available to satisfy any
claims HUD may establish against the
mortgagor or sponsors, including any
judgments resulting from a transfer of
physical assets (TPA), Flexible Subsidy,
secondary financing, workout agreement,
or arising out of failure to satisfy any
guaranty obligation.
d. Determine the miscellaneous assets to be
conveyed to HUD with the tender of title
to the project.
4. On-site Reviews and Inventory of Personal
Property. In accordance with instructions in
Chapter 6 of this Handbook, a management
review and physical inspection of the project
must be completed immediately after
assignment, or must have been completed
within a year prior to the assignment. An
inventory of all personal property at the
project, except that owned by tenants, should
be completed. The inventory should identify
the owner(s) of the personal property. Any
obligations against such property must be
reported, thus making the inventory useful in
determining the existence of corporate assets
that may be proceeded against in satisfaction
of a deficiency judgment. The on-site
reviews and property inventory will assist
the Field Office in determining:
a. the possible existence of waste, fraud,
and/or mismanagement;
b. the approximate cost of repairs
necessary for rehabilitation of the
project; and
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c. the presence of all equipment covered by
Chattel or real estate mortgages, or
that which should have been so covered,
as well as other property used in the
maintenance and operation of the
project.
SECTION 3. REINSTATING DEFAULTED MORTGAGES
10-7. GENERAL. HUD Field Office Loan Management/Asset
Management Branch staff will evaluate each HM-Held
mortgage to determine whether reinstatement is
feasible. Before HUD will consider reinstating the
loan, other than bringing the mortgage current
immediately, the mortgagor must prove to HUD that the
reinstatement plan is in the best interest of the
Department, the tenants, and the project. For a plan
to be considered, it must comply with the requirements
in Paragraph 10-9 below.
10-8. OWNER RESPONSIBILITIES AFTER ASSIGNMENT.
A. The owner must pay all reasonable and necessary
project operating expenses and each month remit
all remaining net cash to the lock box operated by
the Multifamily Notes Branch until a written
reinstatement plan is executed. The project name
and number should be clearly stated and the check
should be sent to:
Multifamily Payment Processing Center
Post Office Box 70764
Chicago, IL 60673
B. The owner will submit Monthly Accounting Reports,
Forms HUD-93480, 93481 and 93482, a plan for
mortgage reinstatement in accordance with Chapter
11 of this Handbook, and a plan for property
improvement, where needed. Copies of the HUD
Forms should be enclosed with the letter sent to
the owner.
C. The owner will submit to the Field Office within
30 days from the date of the letter a plan for
mortgage reinstatement in accordance with Chapter
11 of this Handbook and property improvement,
where needed. The letter must state that HUD
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expects to have a written reinstatement plan in
effect within 90 days following mortgage
assignment.
10-9. OWNER REQUESTS FOR RELIEF. The owner's request for
relief must be in writing and must state the basis for
needing the relief sought. The Loan Management/Asset
Management Branch staff is responsible for determining
the cause of default and that reinstatement is not
beyond the realm of reasonable possibility. The owner
must be able and willing to:
A. Demonstrate that default is not a result of any
deliberate or voluntary action.
B. Restore to the project any funds or assets
improperly withdrawn, distributed or disbursed.
C. Correct any conditions constituting violations of
the Regulatory Agreement or Section 8 HAP
Contract.
D. Provide and maintain management acceptable to HUD.
E. Correct any physical deficiencies and make general
upgrading repairs or whatever extensive renovation
the project may require.
F. Make additional funds available, where necessary.
SECTION 4. GENERAL SERVICING REQUIREMENTS
10-10. GENERAL. While emphasis must be placed on servicing
HUD-Held mortgages which are in default, mortgages
current under the terms of the mortgage require the
same monitoring that insured mortgages receive.
Assistance should be given project owners in their
efforts to achieve sound operations. However, the
responsibility for liquidation of the mortgage debt
rests with the property owner, not with HUD. The
Director, Housing Management Division and Loan
Management Branch Chief in each respective Field Office
have direct responsibility for servicing HUD-Held
mortgages. The project owners should be informed that
all inquiries concerning operation of the project are
to be addressed to the Field Office staff.
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10-11. MONTHLY ACCOUNTING REPORTS. Upon receipt of a notice
of election to assign a mortgage, Monthly Accounting
Reports, Forms HUD-93479, 93480, and 93481, including
project net cash, must be submitted by the project
owner. These reports will assist in determining the
owner's compliance with HUD requirements and the terms
of any workout arrangement requested, identifying
diversions of project assets and assessing owner's
performance. The monthly accounting reports should be
analyzed upon receipt by the Loan Management Branch
staff. Detailed procedures for review and analysis of
monthly accounting reports are contained in HUD
Handbook 4370.1. Loan Management/Asset Management
staff should also review the Statement of Multifamily
Mortgage Account & Notice of Mortgage Payment Due (Form
HUD 2771) to be sure the owner is submitting the
required monthly payments. If the owner is not
submitting the required monthly payments or is in
violation of any financial commitment, the Loan
Servicer/Asset Manager must contact the project owner
and inform him/her of the importance of timely and
accurate payments. If the owner fails to respond, the
Loan Servicer/Asset Manager and Supervising Loan
Servicer or Loan Management Branch Chief must develop a
plan of corrective action and contact the owner with
the necessary requirements.
10-12. FINANCIAL STATEMENTS. Annual audited financial
statements must be prepared, submitted, and reviewed in
accordance with instructions in HUD Handbooks 4370.1
and 4370.2.
10-13. HAZARD INSURANCE. Unlike procedures for insured
mortgages, HUD, as the mortgage holder, does not escrow
hazard insurance premiums. Project owners must
establish an insurance escrow account in accordance
with Chapter 21 of this Handbook in order to assure an
adequate balance when the premiums are due. This
should include any deductible amount required by the
insurance carrier.
10-14. TAXES. HUD bills project owners for real estate taxes
in an amount sufficient to have adequate escrow
balances to pay taxes before the due date. Generally,
this means that the entire amount due the State or
local government must be fully escrowed thirty (30)
days before the due date so the taxes may be paid
before the penalty date.
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10-15. UNIFORM COMMERCIAL CODE (UCC) REQUIREMENTS. Upon
assignment to HUD, the assigning lender is required to
also assign its security interest in chattels,
including materials. (A chattel is any article of
tangible property other than land, buildings, and other
property purchased with mortgage proceeds or income
from the project). The mortgagee must warrant that:
A. No act or omission of the mortgagee has impaired
the validity or priority of the lien created by
the chattel security instruments;
B. the mortgagee has a good right to assign the
security instruments; and
C. the chattel security instruments are a first lien
on items covered by the instruments except such
other liens or encumbrances as may be approved by
the Commissioner.
Under UCC requirements, HUD must file a report
periodically (every 5 years or as state law requires)
to assure that a lien on such chattels remains in
effect until the mortgaged property is paid in full or
foreclosed. Therefore, it is essential that an
accurate inventory be maintained by the project owner
of the personal property fixtures and equipment
belonging to the project. These inventories should be
reviewed at least every two years by the Loan
Management staff to assure that no asset is taken from
the property without adequate compensation to the
project.
10-16. FUNDED RESERVES must be maintained in accordance with
the mortgage document and instructions in this
Handbook.
10-17. USE OF PROJECT FUNDS. An owner may not use project
funds to pay an attorney, agents, or representatives to
develop a workout proposal for HUD to consider and/or
to advocate that HUD approve the plan. Further,
project funds may not be used to defend a foreclosure
action or to pay for a bankruptcy action.
10-18. SURVEY OF TENANTS IN ASSIGNED PROPERTIES. Each Field
Office must ensure that unassisted tenants in projects
with assigned mortgages are surveyed as indicated
below. Section 203 of the Housing and Community
Development Act of 1978, as amended by the Housing and
Community Development Act of 1987 and the Stewart B.
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McKinney Homeless Assistance Amendments Act of 1988,
requires HUD to preserve, in unsubsidized insured
projects, the affordability of "at least the units that
are occupied by low and moderate income persons on the
date of assignment or foreclosure, whichever is
greater." Whenever a project is assigned to HUD, the
Field Office must:
A. Complete questions 1-8 on the form entitled
"Projects with Assigned Mortgages" for each
project upon assignment. The Projects with
Assigned Mortgages data sheet and the instructions
are found in Exhibit 1 and 1A to this Chapter.
B. Prepare an Income Chart for Projects with Assigned
Mortgages, using the list of HUD Annual Median
Income Limits which is prepared for the Section 8
Program and the list of HUD Annual Median Income
Limits which is prepared for the Section 221(d)(3)
and Section 236 programs. A Format of the Income
Chart for Projects with Assigned Mortgages are
found in Exhibit 2 to this Chapter.
C. Distribute to each project owner whose mortgage
has been assigned to HUD, a packet which includes
the forms listed below:
1. a copy of the "Projects with Assigned
Mortgages," summary of tenant income data
form (with questions 1-8 completed), (Exhibit
1 and 1A to this Chapter).
2. a copy of the "Income Chart for Projects with
Assigned Mortgages," (Exhibit 2 to this
Chapter).
3. a copy of the "Tenant Income Survey,"
(Exhibit 3 to this Chapter),
4. a copy of the "Privacy Act Notice Statement,"
(Exhibit 4 to this Chapter).
5. a letter to the owner, specifying the date by
which the surveys are due back to the Field
Office.
D. Retain the survey documentation in the project
file. The survey results must be utilized in
determining the amount of subsidy and number of
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Section 8 units that may be provided to the
low-income tenants at any foreclosure sale.
E. Send the Tenant Survey and Privacy Act Statement
directly to each resident in the project, in those
cases where the owner refuses to distribute the
survey or will not return the results to the Field
office. The survey must be modified to reflect
Field office origination.
SECTION 5. SERVICING PARTIAL PAYMENT OF CLAIMS MORTGAGES
10-19. GENERAL. HUD may, with the concurrence of the
mortgagee, make a partial payment of an insurance claim
on a defaulted mortgage covering certain multifamily
housing projects. The mortgagee would agree to accept
partial payment in lieu of full assignment and to
recast the remaining mortgage balance. The mortgagor
must give HUD a second mortgage on the property for the
amount of the partial payment. The option to permit a
partial payment of claim may be exercised when it is
determined by HUD that such relief would be less costly
to the Federal Government than other reasonable
alternatives for maintaining the low and moderate
income character of the project. A more detailed
discussion of partial payment of claims and eligible
project is included in Chapter 14 of this Handbook.
10-20. OWNER REQUIREMENTS. Under the terms of the second
mortgage, the owner is required to do the following:
A. At a minimum, the owner is required to pay a
service charge of .5 percent of the second
mortgage per month. Each second mortgage document
must be reviewed to determine the date the
mortgagor must begin making debt service payments.
B. The owner must submit all net cash derived from
project operations. There will be no
distributions to any type owner until the second
mortgage is brought current.
C. Submit Monthly Accounting Reports, Forms HUD
93479, 93480, and 93481 until debt payment service
payments begin, or as determined by the Loan
Management Branch Chief.
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10-21. FIELD OFFICE RESPONSIBILITIES. Partial payment of
claims may be initiated at the Field Office level, but
final approval will be given only by the Assistant
Secretary for Housing. The Field Office is responsible
for monitoring the compliance of the owner as it
relates to the conditions of the second mortgage. Once
debt service payments begin, the owner is subject to
the requirements discussed in Chapter 11 of this
Handbook. Serious consideration shall be given to the
overall cost to HUD prior to the Field Office
recommendation for foreclosure on the second mortgage
if the first mortgage is still insured and current.
A. The Field Office must establish a project file
comprised of the closing documents of the newly
created HUD-Held loan. This file will contain all
pertinent data.
B. Upon receipt, Loan Management staff must review
all Monthly Accounting Reports, Forms HUD-93479,
93480, and 93481. The Statement of Multifamily
Mortgage Account & Notice of Mortgage Payment Due
(Form HUD-2771) must also be reviewed to ensure
that the owner is forwarding the required service
charge, and net cash. Further, the Field Office
will establish a tickler system to ensure all
funds under the workout are paid as required.
This tickler/control will also track all Letters
of Credit or special conditions of the Workout
and/or Management Improvement (MIO) Plan.
C. The Field Office should consider all partial
payment of claims projects as troubled and service
accordingly until the second loan is recast and is
paying current or the Loan Management Branch Chief
makes a finding that the projects are no longer
troubled.
SECTION 6. SECTION 202, AND 202/8 LOANS AND ADVANCES
10-22. GENERAL. Section 202 direct loans are long-term low
interest rate loans made by HUD to non-profit borrower
corporations formed to provide rental housing for
elderly and handicapped persons. As such, these HUD
loans have no mortgage insurance and HUD serves as
mortgagee. Capital advances pursuant to section 202
and Section 811 of the National Affordable Housing Act
will assist owners in financing rental housing for
low-income elderly persons and low-income persons with
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disabilities. Regional Accounting Division (RAD) is
the custodian of all Section 202 loan instruments.
A. Monthly amortization payments are for principal
and interest only.
B. Projects that are current in amortized payments
are not billed.
C. Requests for loan balance should be made directly
to the RAD.
10-23. DEFINITIONS
A. Sponsor - the applicant for the section 202 loan.
The sponsor forms a non-profit corporation which
becomes the "Borrower" to engage in the project
business and to operate the project.
B. Borrower - the non-profit corporation, consumer
cooperative, or public entity designated. The
term Borrower also is synonymous in this Chapter
with mortgagor, owner, and Board of Directors.
10-24. BASIC DOCUMENTS. The basic documents which set forth
the Borrower's responsibility and provide HUD control
of project operations are the Regulatory Agreement, the
mortgage, the mortgage note, and the loan agreement.
A. The Regulatory Agreement is between the Borrower
and HUD. The Borrower agrees to protect the
interests of itself, HUD, and the tenants.
B. The Mortgage (or Deed of Trust) is the document
which pledges the property as security for the
Mortgage Note. It is the key document in the loan
transaction.
C. The Mortgage Note ("Note" or Deed of Trust Note)
sets forth the amount of indebtedness owed HUD by
the Borrower and the manner in which the debt
shall be satisfied.
D. The Loan Agreement, used only with loans made
prior to 1974 (project numbers preceded by SH) and
in conjunction with the Regulatory Agreement. It
defines procedures to be used in the operation of
the project, details the proceedings necessary for
the authorization, execution, and issuance of the
Mortgage Note, details construction requirements,
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sets forth insurance requirements, etc. It also
prescribes the establishment of special accounts,
i.e., debt service reserve, revenue fund account,
tax and insurance escrow, and repair and
replacement reserve account, and details the flow
of revenues into these accounts. The Regulatory
Agreement prescribes escrow accounts and their
funding for loans made since 1974.
10-25. REQUIRED ACCOUNTS. Each Borrower corporation is
required to maintain the following accounts:
A. Revenue Fund Account/Operating Account is the
basic operating account where all rentals,
charges, income, and revenue arising from
operation and ownership of the project are
deposited. This is also the account from which
current expenses (except taxes and insurance) and
debt service requirements are paid. Payments from
this account must be made in accordance with the
Loan and Regulatory Agreements.
B. Tax and Insurance Escrow. One-twelfth of the
annual requirement for ground rents, insurance
premiums, taxes, special assessments, etc., shall
be transferred monthly from the Revenue Fund
Account to this account. Expenditures from this
account should be made as assessments come due to
avoid late charges.
C. Reserve for Replacement and Residual Receipts
Accounts are funded as specified in the Regulatory
Agreement or Loan Agreement. Disbursements from
these funds may be made only after the consent in
writing of HUD. Funds are maintained and invested
according to instructions found in Chapters 4 and
25 of this Handbook.
D. Debt Service Reserve account is required for
Section 202 loans made prior to 1974 (project
numbers for these loans are preceded by SH).
Deposits must be made annually until the balance
required in the Loan Agreement is reached. No
withdrawals may be made from this account without
prior HUD approval. If the balance in the account
falls below the required amount as outlined in the
Loan Agreement, annual deposits will be
reinstituted in order to restore and maintain the
required account balance. Funds in this account
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are maintained according to the instructions in
Chapter 27 of this Handbook.
10-26. RENT INCREASE REQUESTS AND ANNUAL OPERATING BUDGETS are
submitted, reviewed, and processed according to
instructions in Chapter 7 of this Handbook.
10-27. ANNUAL FINANCIAL STATEMENTS must be submitted and
reviewed in accordance with the instructions in HUD
Handbooks 4370.1 and 4370.2.
SECTION 7. DEFAULT SERVICING OF SECTION 202 PROJECTS
10-28. GENERAL. For Section 202 projects in financial
difficulty, Loan Management/Asset Management staff
should seek to prevent (or cure) the delinquency, while
assuring that escrow accounts for taxes and insurance
funded at appropriate levels. Prior to granting any
relief or waivers, the Loan Management/Asset Management
staff must determine the sponsor's ability to advance
funds for curing the default and must be sure that:
A. The Borrower is operating in compliance with the
mortgage, Loan Agreement and Regulatory Agreement.
B. Project Management is satisfactory.
C. Rents are at a sustaining level.
D. The physical condition is satisfactory.
E. The default is not the result of any deliberate or
voluntary action on the Borrower's part.
10-29. DEFAULTS AND ADVERSE TRENDS. When there is a default
or an adverse trend, the Loan Management/Asset
Management staff should contact the Borrower to
ascertain the cause and require the Borrower to begin
submitting Monthly Accounting Reports, Forms HUD-93479,
HUD-93480, and HUD-93481 as discussed earlier. Careful
monitoring of these reports are necessary to detect
areas within project operations which may be causing
the default.
10-30. WAIVER OF RESERVE DEPOSITS AND SCHEDULED PAYMENTS. The
Director, Housing management Division, may waive
deposits to the Reserve for Replacement Account, and/or
authorize use of the Debt Service Reserve Account in
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order to forestall a default or to cure one. However,
prudent use of these funds is necessary in order to
maintain the appropriate balance.
10-31. RELIEF AND REINSTATEMENT OF DEFAULTED SECTION 202
LOANS. Workout arrangements have not been delegated to
the Field Offices for Section 202. Relief for Section
202 mortgages in default may include suspension of
payments to the Reserve for Replacement as discussed
above. For terms of workout arrangement
recommendations, see Chapter 11 of this Handbook.
10-32. PARTIAL RELEASE OF SECURITY. In most cases, the
procedures which apply to the release of insured or
HUD-Held mortgages also apply to Section 202 projects,
However, the Section 202 project owner must apply the
entire amount received from the release to the unpaid
principal balance of the loan. In the event of
delinquent loan payments, the amount received from the
release will be applied to any delinquency, then to
outstanding principal. Should the payment result in a
substantial reduction of principal, HUD may recast the
loan over the remaining term. This may result in a
rent decrease and/or lessen the amount of future rent
increases.
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SECTION 8. APPLICATION OF FUNDS TO INDEBTEDNESS
10-33.HUD may on occasion auction, sell, or assign HUD-Held
notes and mortgages. When the Department disposes of
these mortgages there may exist funds that were held in
escrow at the time the mortgages were assigned to HUD
as well as funds accumulated in the escrows during the
period that the mortgages were held by HUD. When such
loans are in default and are auctioned, sold, or
assigned by HUD without mortgage insurance, HUD will
apply the funds in the Reserve Fund for Replacements
account to amounts due to the Department before the
loans are transferred. However, in any case where the
loan is subject to a provisional workout arrangement
and the mortgagor is in compliance with the provisional
workout arrangement, the Department will not apply the
funds in the Reserve Fund for Replacements account to
amounts due to the Department before the loan is
transferred if (i) the provisional workout arrangement
specifically provides that the Department will take no
action to apply the Reserve for Replacement funds to
the indebtedness if the loan is auctioned, sold, or
assigned by it without mortgage insurance, or (ii) the
Department has agreed in the provisional workout
arrangement to specific applications of the Reserve
Fund for Replacements. The Department also may and in
most cases will apply any funds held in other escrows,
such as Residual Receipts accounts and tax escrow
accounts, to delinquent sums due under the notes and
mortgages.
3/95 10-16a
_____________________________________________________________________
4350.1 REV-1
EXHIBIT 1
________________________________________________________________________
PROJECTS WITH ASSIGNED MORTGAGES
Project Data and Summary of Assisted Units (to be completed by
Field Office and reviewed by owner/manager).
1. FHA number/Section 8 Contract Number ____________________________
2. Date Mortgage Assigned ___________________________________________
3. Property Name ____________________________________________________
4. Property Address _________________________________________________
5. Geographical Area ________________________________________________
6. Total Units in Projects __________________________________________
7. Number of Units in Section 8 Contract ____________________________
8. Number of Tenants Receiving Section 8 Assistance at Date of
Assignment (tenants with current 50059) ________________________
Summary of Unassisted Units (to be completed by owner/manager)
9. Number of Tenants Receiving Assistance under Section 8
Existing or Housing Voucher Program
10. Number of Units Not Responding
11. Number of Vacant Units
12. Number of Units with low-income Tenants (0-80%)
13. Number of Units with moderate income tenants (81-95%)
14. Number of Units with higher income tenants (over 96%)
________________________________________________________________________
10-17 9/92
_____________________________________________________________________
435061 REV-1
EXHIBIT 1A
________________________________________________________________________
INSTRUCTIONS FOR OWNERS OF PROJECTS WITH ASSIGNED MORTGAGES
A. Distribute tenant certification to each unit for which there
is no current 50059 on file. Include a stamped,
self-addressed envelope for each certification and specify a
telephone or other contact and a date for return of the
surveys.
B. Gather and separate the tenant certifications by number of
tenants residing in the unit.
C. Sort tenant certifications into income levels according to
the chart covering your geographical area provided by the
Field Office.
D. Fill in questions 9-14. (Field Office should have completed
questions 1-8. Please check this information for accuracy.)
E. Return the completed Projects with Assigned Mortgages form
to the Field Office, along with the tenant surveys collected
by one month from the date of this letter.
________________________________________________________________________
9/92 10-18
_____________________________________________________________________
4350.1 REV-1
EXHIBIT 2
________________________________________________________________________
INCOME CHART FOR PROJECTS WITH ASSIGNED MORTGAGES
(FORMAT)
Geographical Area ______________________________________________________
INCOME FAMILY SIZE
CLASSIFICATION (number of persons)
1 2 3 4 5 6 7 8
______________________________________________________
Low Income
(0-80%)
______________________________________________________
Moderate
Income
(81-95%.)
______________________________________________________
________________________________________________________________________
10-19 9/92
_____________________________________________________________________
4350.1 REV-1
EXHIBIT 3
________________________________________________________________________
TENANT INCOME SURVEY
Dear ________:
We are required by the Congress, under the Housing and
Community Development Act of 1987, to collect the following
information about household incomes of the tenants in this
complex. Because the law is concerned with the preservation of
housing affordable to low and moderate income persons, it may be
to your benefit to respond if you feel you fit into these
categories.
We will send a summary of the income levels of the people
living here to the U. S. Department of Housing and Urban
Development (HUD). The attached Privacy Act Statement explains
the authority, purposes, and uses of this information collection.
Please read the Privacy Act Statement thoroughly, sign the
certification, and return the survey in the enclosed envelope by
_________________. If you have any questions, please contact us
at _______________________. Thank you for your cooperation.
Sincerely,
1. Unit Number __________
2. How many people live in your unit? _________________________
3. How many bedrooms does your unit have? _____________________
4. What is the combined annual income of
all the people living in your unit ___$__(approx)___________
5. I certify that the above information is true and complete to
the best of my knowledge.
__________________________________
Signature of person
whose name is on the Lease
________________________________________________________________________
9/92 10-20
_____________________________________________________________________
4350.1 REV-1
EXHIBIT 4
________________________________________________________________________
PRIVACY ACT NOTICE STATEMENT
Read this before you sign the tenant income certification.
The Department is authorized by the Housing and Community
Development Amendments Act of 1978, as amended by the Housing and
Community Development Act of 1987 and the Stewart B. McKinney
Homeless Assistance Amendments Act of 1988, to collect
information relating to the income level of certain unassisted
tenants in projects with assigned or foreclosed mortgages. The
information being collected with this survey will enable HUD to
determine the number of units it must maintain as affordable for
low and moderate income persons. The information will be used in
establishing the income classification of unassisted tenants.
The information will be used to divide respondents into the
categories of very low, low, or moderate income. When a property
is disposed of, the information may be used to identify specific
units and unit types which should be retained as affordable, and
may be used in determining what type of assistance can be
provided to the project. The information may be provided to new
owners entering into a Housing Assistance Payments Contract with
HUD. Also, HUD may disclose this information to Federal, State,
and local agencies when relevant to civil, criminal, or
regulatory investigations and prosecutions. It will not be
otherwise disclosed or released outside of HUD, except as
required and permitted by HUD. Individuals choosing not to
participate in the survey cannot be prosecuted for failing to
respond. However, it the Department does not know that the
respondent's unit is of low or moderate income, it can not make
provisions for that unit in its plans for disposing of the
project.
________________________________________________________________________
10-21 9/92
_____________________________________________________________________
4350.1 REV-1
APPENDIX 1
________________________________________________________________________
LETTER TO OWNER UPON RECEIPT OF THE LENDER'S
ELECTION TO ASSIGN
Mortgagor
Address
Dear _____________:
HUD has received the mortgagee's election to assign to the
Secretary the defaulted mortgage on (Project Name ____________),
(HUD Project No. ________________). In accordance with policy
guidelines, if this mortgage is assigned, HUD will put this
mortgage into foreclosure immediately after the assignment has
been completed.
In order for the assignment and foreclosure action to be
avoided, you must bring the mortgage current immediately by
paying all delinquencies. If you cannot bring the mortgage
current immediately, and it is assigned, you must submit a
reinstatement plan designed to bring the mortgage current through
principal within 36 months of the assignment. The reinstatement
plan must be submitted to this office within 30 days of the date
of this letter. Guidelines for any reinstatement plan include,
but are not limited to:
1. Generally, the mortgage must be brought current through
principal in no more than 36 months from assignment.
2. The reinstatement plan must provide that you make any
necessary repairs.
3. HUD will not capitalize any delinquent interest.
4. HUD will not recast any principal on unsubsidized
projects. HUD may consider recasting principal on
subsidized projects if justification can be presented.
Sincerely,
Director,
Housing Management Division
________________________________________________________________________
9/92 10-22
_____________________________________________________________________
4350.1 REV-1
APPENDIX 2A
________________________________________________________________________
FORMAT - LETTER TO OWNER AT DEFAULT ASSIGNMENT
(Letter may also be sent on behalf of HUD by the
Asset Management Contractor for formerly coinsured loans)
Addressee: Project Owner
Subject: Project Number, Name, and Location
Dear________________________,
The mortgage on the above project was assigned to the
Department of Housing and Urban Development on (date). As HUD
is now the lender, you must submit your plan for reinstating the
loan or arrange a meeting in our office to discuss a
reinstatement plan within 30 days. The Department expects to
have a written reinstatement plan in effect within 90 days.
Effective immediately, you are to pay all reasonable and
necessary project operating expenses and each month remit all
remaining net cash to the lock box operated by the Multifamily
Notes Servicing Branch. All monthly payments are to be made to
the lock box. The project name and number should be clearly
stated and the check sent to:
Multifamily Payment Processing Center
(Field Office insert correct address)
HUD does not currently escrow for property insurance.
Therefore, you must arrange for insurance coverage as required by
the mortgage and make premium payments either from project income
or other sources. Insurance escrows were terminated at mortgage
assignment and any funds in the escrow were applied to sums due
under the mortgage.
Until you bring the mortgage fully current you are
prohibited from taking any owner distribution, repaying any funds
advanced to the project, or repaying either interest or principal
on any project obligation junior to HUD's mortgage. Section 239
of the National Housing Act prohibits the willful use of project
funds for purposes other than actual and necessary operating
expenses (including debt service requirements) while a loan is in
default. Section 239 further provides for penalties of fine
and/or imprisonment.
In addition, you are required to submit Monthly Reports for
Establishing Net Income, Forms HUD-93479, HUD-93480 and HUD
93481, copies enclosed.
________________________________________________________________________
10-23 9/92
_____________________________________________________________________
4350.1 REV-1
APPENDIX 2A
________________________________________________________________________
It is imperative that you operate in accordance with a
HUD-approved Workout Arrangement which is based on your reinstatement
proposal. Your proposal should outline how you plan to reinstate
the mortgage (bring it current and resume full amortization)
within 36 months. Your plan should also demonstrate that you:
1. Did not cause the default by any deliberate or
voluntary act;
2. Have restored to the project any funds or assets
improperly withdrawn, distributed or disbursed;
3. Will correct any conditions constituting violations of
the Regulatory Agreement or Section 8 HAP Contract and
thereafter conform to its requirements;
4. Will provide and maintain management
acceptable to the HUD Loan Management Branch
Chief; and
5. Will correct any physical and financial
deficiencies and make any general upgrading
repairs or renovation the project may
require.
Unless you have already submitted a detailed reinstatement
plan, you must, within 30 days from the date of this letter,
arrange a meeting in our office to discuss the terms and
conditions of an acceptable proposal. Any questions you may have
can be answered during the meeting. It is essential that you
submit your written reinstatement proposal within 30 days of the
meeting because, as noted above, HUD expects to have a written
reinstatement plan in effect within 90 days following assignment.
In the event no acceptable plan is submitted within that time
period, this office will initiate foreclosure.
To arrange a meeting time, you should contact (Loan
Specialist's Name) at (Telephone No.). We look forward to
working with you to reinstate this loan.
Sincerely,
Director,
Housing Management Division
Enclosures
________________________________________________________________________
9/92 10-24
_____________________________________________________________________
4350.1 REV-1
APPENDIX 2B
________________________________________________________________________
FORMAT - LETTER TO OWNER AT G-4 ASSIGNMENT
Addressee: Project Owner
Subject: Project Number, Name, and Location
Dear_________________________:
The mortgage on the above project was assigned to the
Department of Housing and Urban Development on ___(date)____.
Each month you should remit the scheduled mortgage payment to the
lock box operated by the Notes Receivable Branch. The project
name and number should be clearly stated and the check sent to:
Multifamily Payment Processing Center
(Field Office insert correct address)
If you should have any questions regarding this matter,
please contact (Loan Specialist) at (telephone number).
Sincerely,
Director,
Housing Management Division
________________________________________________________________________
10-25 9/92
................
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